ACIT CIR. 6 (3) (2), MUMBAI V. KAMANI OIL INDUSTRIES P. LTD., MUMBAI

ITA 5010/MUM/2016

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4284 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 05-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Keywords: Gross profit estimation; Business income; Depreciation
• Section: 142(1); 145; 6

Judgement Text

1 ITA 5010/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI MAHAVIR SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5010/MUM/2016 (ASSESSMENT YEAR: 2012-13) ACIT-CIRCLE 6(3)(2), MUMBAI VS M/S KAMANI OIL INDUSTRIES LTD 317, POORAN ASHA BLDG NARSI NATHA STREET, MASJID BUNDER MUMBAI 400 009 PAN : AACCK4395B APPELLANT RESPONDENT I.T.A NO.5010/MUM/2016 (ASSESSMENT YEAR: 2012-13) M/S KAMANI OIL INDUSTRIES LTD 317, POORAN ASHA BLDG NARSI NATHA STREET, MASJID BUNDER MUMBAI 400 009 VS DY.CIT 6(3)(1), MUMBAI APPELLANT RESPONDENT REVENUE BY SHRI D.G. PANSARI ASSESSEE BY SHRI JITENDRA JAIN DATE OF HEARING 31-07-2018 DATE OF PRONOUNCEMENT 10-10-2018 O R D E R 2 ITA 5010/MUM/2016 PER G MANJUNATHA, AM : THESE CROSS APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT( A)-12, MUMBAI DATED 06-05-2016 AND THEY PERTAIN TO QY 2012-13. S INCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CO NVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- '1. 'ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF ESTIMATIONS OF THE GROSS PROFIT @ 9% AND REJECTION OF BOOKS U /S. 145' 2. 'ON FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THE FACT T HAT THE SSESSEE DID NOT PROVIDE TO THE AO. THE DETAILS OF CONSUMPTION OF RAW MATERIAL (SEEDS) VIS--VIS YIELD S, SEPARATELY IN RESPECT OF DIFFERENT TYPES OILS (COTT ON, MUSTARD AND GROUND NUT, ETC.) EXTRACTED FROM DIFFERENT SEED S, WHEN THERE IS HUGE VARIATION IN THE MARKET PRICE OF THES E OILS, AND THIS BEING ONE OF THE MAJOR REASONS FOR REJECTION O F BOOK RESULT U/S 145.' 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) - 12, MUMBAI, [HEREINAFTER REFERRED TO AS CIT(A)] ERRED I N CONFIRMING THE ADHOC DISALLOWANCE OF RS. 1,00,00,00 07- FOLLOWING THE PREDECESSOR'S ORDER. THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMS TANCES OF THE CASE OF THE APPELLANT THERE IS NO NON CORREL ATION OR LEAKAGE OF CONSUMPTION MATERIAL AND HENCE, NO ADHOC DISALLOWANCE OF RS. 1,00,00,0007- IS CALLED FOR IN ITS CASE AND ADDITION CONFIRMED BY THE CIT(A) SHALL BE DELET ED. 3 ITA 5010/MUM/2016 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACT URING, REFINING AND TRADING IN EDIBLE OILS AND VANASPATI. THE ASSES SEE HAS FILED ITS RETURN OF INCOME FOR AY 2012-13 ON 28-09-2012 DECLA RING TOTAL LOSS AT RS.1,26,72,255. THE CASE WAS SELECTED FOR SCRUTI NY AND STATUTORY NOTICES U/S 143(2) AND 142(1) OF THE ACT DATED 24-0 7-2014 ALONGWITH QUESTIONNAIRE WAS ISSUED. IN RESPONSE TO THE NOTICE S, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FILED VARIOUS DETAILS, AS CALLED FOR INCLUDING AUDITED FI NANCIAL STATEMENTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THERE IS A DECREASE IN GROSS PROFIT DECLARED BY THE ASSESSEE WHEN COMPARED TO GROSS PROFIT DECLARED FOR AY 2011-12, - THEREFORE, CALLED UPON TO JUSTIFY DECLINE IN GROSS PROFIT WITH NECESS ARY EXPLANATION. IN RESPONSE TO SHOW CAUSE NOTICE, ASSESSEE HAS FILED A DETAILED REPLY ALONGWITH RECONCILIATION OF GROSS PROFIT DECLARED F OR THE ASSESSMENT YEAR 2011-12 AND FOR THE YEAR UNDER CONSIDERATION A ND EXPLAINED REASONS FOR FALL IN GROSS PROFIT. ACCORDING TO THE ASSESSEE, THE MAIN REASON FOR DECLINE IN GROSS PROFIT. SECOND REASON FOR DECLINE IN GROSS PROFIT IS THAT IS INCREASE IN RAW MATERIAL COST WHICH FLUCTUATES ACCORDING TO THE INTERNATIONAL MARKET BECAUSE OF WH ICH THERE WAS AN 4 ITA 5010/MUM/2016 INCREASE IN COST OF OIL WHICH IS ONE OF THE REASONS FOR DECLINE IN GROSS PROFIT. THE SECOND REASON FOR DECLINE IN GRO SS PROFIT IS GROUPING / REARRANGING OF CERTAIN EXPENSES FROM CON SUMPTION OF RAW MATERIALS TO MANUFACTURING COST WHICH RESULTED IN E NHANCED CONSUMPTION OF RAW MATERIALS. ANOTHER REASON FOR DE CLINE IN GROSS PROFIT IS THAT IN THE PREVIOUS FINANCIAL YEAR, THE ASSESSEE HAS INCLUDED FREIGHT, TRANSPORTATION, COOLIE AND CARTAG E EXPENSES AND CONSIGNMENT EXPENSES UNDER THE HEAD 'SELLING AND DI STRIBUTION EXPENSES' WHEREAS DURING THE YEAR UNDER CONSIDERATI ON, THE SAID EXPENSES HAS BEEN INCLUDED IN MANUFACTURING COST. T HIS RESULTED IN SHARP DECLINE IN GROSS PROFIT RATIO WHEN COMPARED T O PREVIOUS FINANCIAL YEAR. IF FREIGHT, TRANSPORTATION EXPENSES , ETC. ARE EXCLUDED FROM MANUFACTURING COST, THEN THE GROSS PROFIT RATI O WORKS OUT TO 5.68% AS AGAINST REPORTED GROSS PROFIT RATIO OF 3.5 5% IN THE FINANCIAL STATEMENT. IF CORRECT GROSS PROFIT IS COMPARED WIT H THE GROSS PROFIT DECLARED FOR AY 2011-12, THEN THERE IS A DIFFERENCE OF 1.12% WHICH IS ON ACCOUNT OF INCREASE IN OIL PRICES. THEREFORE, WITHOUT ANY DISCREPANCIES NOTICED IN THE BOOKS OF ACCOUNT, MERE LY FOR THE REASON OF MINOR DIFFERENCE IN GROSS PROFIT, THE BOOKS OF A CCOUNT CANNOT BE REJECTED AND GROSS PROFIT CANNOT BE ESTIMATED. 5 ITA 5010/MUM/2016 4. THE AO, AFTER CONSIDERING RELEVANT SUBMISSIONS OF T HE ASSESSEE HELD THAT THOUGH THERE IS A DIFFERENCE IN GROSS PROFIT DECLARED FOR THE YEAR UNDER CONSIDERATION, WHEN COM PARED TO PREVIOUS FINANCIAL YEAR, THE ASSESSEE FAILED TO EXP LAIN SUCH DIFFERENCE WITH PLAUSIBLE REASONS. THE AO FURTHER O BSERVED THAT THE ASSESSEE COMPANY HAS BEEN CONSISTENTLY SHOWING GROS S PROFIT ABOUT 10% OVER THE PERIOD AND THE SUDDEN DECLINE FR OM 6.8% TO 3.55% IS NOT EXPLAINED SATISFACTORILY. THE STOCK DE TAILS AND ANALYSIS SUBMITTED IN SUPPORT OF THE CLAIM THAT THE INCREASE IN INPUT COST HAS ERODED THE GROSS PROFIT MARGIN IS NOT SATISFACTORIL Y ESTABLISHED BY THE ASSESSEE. IN VIEW OF THE FACTUAL CIRCUMSTANCES OF T HE CASE AND THE PECULIARITIES ARISING AS A RESULT OF NATURE OF BUSI NESS, THE BOOK RESULTS ARE NOT FOUND ACCEPTABLE AND ACCORDINGLY, R EJECTED BOOKS OF ACCOUNT U/S 145(3) OF THE INCOME-TAX ACT, 1961 AND THE INCOME IS DETERMINED ON THE BASIS OF GROSS PROFIT ESTIMATION. THE AO FURTHER OBSERVED THAT IN THE LAST ASSESSMENT YEAR (AY 2011- 12), THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED ON ACCOUNT OF DEFECTS FOUND IN THE BOOKS OF ACCOUNT AND GROSS PROFIT WAS ESTIMATED AT 9% OF THE TOTAL SALES / TURNOVER. SIMILARLY, DURING TH E YEAR UNDER CONSIDERATION, VARIOUS DEFECTS WERE FOUND IN TERMS OF REASONABLE AND DETERMINABLE CO-RELATION OF THE OUTPUT VICE VER SA THE INPUT. 6 ITA 5010/MUM/2016 SINCE, THE SALES ARE THE ONLY REASONABLE POINT OF R EFERENCE OF THE REJECTION OF BOOK RESULTS, THE GROSS PROFIT IS WORKED OUT AT 9% AFTER DULY WEIGHING VARIOUS FACTORS AS ADDUCED BY THE ASS ESSEE COMPANY. ACCORDINGLY, HE ESTIMATED GROSS PROFIT OF 9% ON SALES TURNOVER AND MADE ADDITION OF RS.48,97,12,103 TOWAR DS DIFFERENCE IN GROSS PROFIT ESTIMATED ON TOTAL SALES AND GROSS PROFIT DECLARED IN BOOKS OF ACCOUNT. 5. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), ASSESSE E HAS REITERATED ITS SUBMISSIONS MADE BEFORE THE AO TO ARGUE THAT ME RE FALL IN RATE OF GROSS PROFIT MAY NOT BE A REASON FOR ESTIMATION OF GROSS PROFIT WHEN ASSESSEE HAS SUBSTANTIATED FALL IN GROSS PROFIT WIT H NECESSARY EVIDENCE. THE ASSESSEE FURTHER SUBMITTED THAT THE G ROSS PROFIT RATIO CANNOT BE EXPECTED TO BE AT SAME RATE WHEN THE ASSE SSEE HAS PROCURED RAW MATERIALS FROM VARIOUS SOURCES. THE AS SESSEE IS IN THE BUSINESS OF MANUFACTURING AND SALE OF EDIBLE OILS A ND VANASPATI, PURCHASED RAW MATERIALS, AND THE PRICE OF WHICH IS DEPENDENT UPON INTERNATIONAL MARKET RATES, THEREFORE, THERE IS A S HARP RISE IN PRICE OF RAW MATERIALS WHICH RESULTED IN DECLINE IN GROSS PR OFIT RATIO FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE FURTHER SUBM ITTED THAT ANOTHER REASON FOR FALL IN GROSS PROFIT IS ON ACCOU NT OF REGROUPING / 7 ITA 5010/MUM/2016 RE-ARRANGING CERTAIN EXPENSES FROM P&L ACCOUNT TO T RADING ACCOUNT WHICH RESULTED IN LESSER GROSS PROFIT. ALL THESE FA CTORS HAVE BEEN EXPLAINED BEFORE THE AO WITH NECESSARY EVIDENCE, BUT THE AO HAS IGNORED EXPLANATION FURNISHED BY THE ASSESSEE AND E STIMATED GROSS PROFIT ONLY ON THE BASIS OF GROSS PROFIT RATE DECLA RED FOR AY 2010-11 WITHOUT ASSIGNING ANY REASON AS TO HOW BOOKS OF ACC OUNT MAINTAINED BY THE ASSESSEE ARE INCONSISTENT WITH AC COUNTING PRINCIPLES / METHOD OF 6. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO BY FOLLOWING HIS PREDECESSOR'S AP PELLATE ORDER FOR AY 2011-12, PARTLY ALLOWED APPEAL FILED BY THE ASSE SSEE WHEREIN HE HAS SUSTAINED LUMP SUM ADDITION OF RS.1 CRORE IN RE SPECT OF GROSS PROFIT ESTIMATION AND THE BALANCE AMOUNT HAS BEEN D IRECTED TO BE DELETED. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSES SEE IS IN APPEAL. 7. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEAR ING, SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BENCH 'E' IN ASSESSEE'S OW N CASE FOR AY 2011-12 IN ITA NO.3151/MUM/2015, WHERE UNDER SIMILA R SET OF FACTS, THE ITAT HAS DELETED ADDITION MADE BY THE AO TOWARD S ESTIMATION OF GROSS PROFIT. THE LD.AR FURTHER SUBMITTED THAT THE AO HAS MADE SIMILAR ADDITION TOWARDS ESTIMATION OF GROSS PROFIT FOR SIMILAR 8 ITA 5010/MUM/2016 REASONING WHICH HAS ALREADY BEEN CONSIDERED BY THE ITAT, THEREFORE, FOR SIMILAR REASONS, ADDITION MADE BY TH E AO SHOULD BE DELETED. THE LD.AR, FURTHER REFERRING TO THE PAPER BOOK FILED, SUBMITTED THAT THE ASSESSEE HAS EXPLAINED REASONS F OR FALL IN GROSS PROFIT RATIO WHEN COMPARED TO PREVIOUS FINANCIAL YE AR BY FILING A RECONCILIATION STATEMENT AND THE AO HAS IGNORED COM PLETE EVIDENCES FILED BY THE ASSESSEE MERELY FOR THE REAS ON THAT A SIMILAR ADDITION HAS BEEN MADE IN THE PRECEDING FINANCIAL Y EAR. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNT AND SUCH BOOKS OF ACCOUNT WERE AUDITED U/S 44AB OF THE IT. ACT, 1961 AND THE TAX AUDITOR HAS ISSUED A CLEAN RE PORT WITHOUT ANY ADVERSE COMMENTS ON BOOKS OF ACCOUNT OR STOCK REGIS TERS. THEREFORE, THERE IS NO REASON FOR THE AO TO REJECT BOOKS OF ACCOUNT U/S 145(3) AND ESTIMATE GROSS PROFIT BY ADOPTING GR OSS PROFIT OF EARLIER YEAR WHICH HAS BEEN KNOCKED DOWN BY THE ITA T. 8. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HA S GIVEN TWO REASONS FOR FALL IN GROSS PROFIT RATE, ONE REASON F OR DECLINE IN GP RATE IS INCREASE IN COST OF RAW MATERIALS DUE TO THE FLU CTUATION IN PRICES OF EDIBLE OIL IN THE INTERNATIONAL MARKET AND ANOTHER REASON FOR DECLINE IN GROSS PROFIT IS REGROUPING / RE-ARRANGING OF CER TAIN EXPENSES FROM P&L ACCOUNT TO TRADING ACCOUNT. THE LD.AR REFERRING TO PAPER BOOK 9 ITA 5010/MUM/2016 PAGES 57 & 58 SUBMITTED THAT THE ASSESSEE HAS FILED A COMPARATIVE CHART OF GROSS PROFIT RATIO FOR AY 2011-12 AND AY 2 012-13 AND ALSO CORRECTED GROSS PROFIT OF AY 2012-13 AS PER WHICH T HE CORRECT GROSS PROFIT AFTER REGROUPING OF EXPENSES WORKS OUT TO 5. 68% AS AGAINST 3.55% DECLARED IN THE BOOKS OF ACCOUNT. IF CORRECT GROSS PROFIT OF 5.68% IS CONSIDERED TO THE GROSS PROFIT DECLARED FO R AY 2011-12 OF 6.8%, THEN THERE IS A MARGINAL DIFFERENCE OF 1.12% WHICH IS ON ACCOUNT OF INCREASE IN COST OF RAW MATERIALS. THERE FORE, THERE IS NO REASON FOR THE AO TO ESTIMATE GROSS PROFIT. THE LD. AR FURTHER SUBMITTED THAT ALTHOUGH THE LD.CIT(A) HAS ACCEPTED THE CONTENTION OF THE ASSESSEE, STILL SUSTAINED ADHOC DISALLOWANCE OF RS.1 CRORE BY FOLLOWING HIS PREDECESSOR'S APPELLATE ORDER WITHOUT ASSIGNING ANY REASONS. BUT FACT REMAINS THAT ON FURTHER APPEAL, T HE ITAT HAS DELETED THE ADDITION SUSTAINED BY THE LD.CIT(A). TH EREFORE, FOR SIMILAR REASONS, THIS YEAR ALSO THE ADDITION MADE B Y THE AO SHOULD BE COMPLETELY DELETED. 9. ON THE OTHER HAND, THE LD.DR SUBMITTED THAT THE AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE BOOK S OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE INCONSISTENT FOR VAR IOUS REASONS, BUT THE LD.CIT(A) WITHOUT ASSIGNING ANY REASONS, NE GATED OBSERVATIONS MADE BY THE AO FOR REJECTION OF BOOKS OF ACCOUNT. THE 10 ITA 5010/MUM/2016 LD.DR FURTHER SUBMITTED THAT THE LD.CIT(A) ERRED IN CONFIRMING ADHOC DISALLOWANCE OF RS.1 CRORE BY FOLLOWING HIS P REDECESSOR'S ORDER WITHOUT DISCUSSING THE FACTS AND CIRCUMSTANCE S AS TO HOW THE GROSS PROFIT ESTIMATED BY THE AO IS INCORRECT. ALTH OUGH, THE ITAT HAS KNOCKED OUT THE ADDITION MADE BY THE AO IN THE EARLIER YEAR, BUT FACT REMAINS THAT THERE IS NO RES JUDICATA IN INCOM E-TAX PROCEEDINGS AND EACH ASSESSMENT HAS TO BE EXAMINED IN THE LIGHT OF FACTS BROUGHT OUT FOR THE YEAR UNDER CONSIDERATION. THE A O IN HIS ASSESSMENT ORDER HAS DETAILED THE REASONS FOR REJEC TION OF BOOKS OF ACCOUNT AND ESTIMATION OF GROSS PROFIT AND HENCE, T HE ADDITION MADE BY THE AO SHOULD BE UPHELD. 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MA TERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO HAS REJECTED BOOKS OF ACCOUNT U/S 145 (3) OF THE ACT, AND ESTIMATED GROSS PROFIT AT 9% ON TOTAL SALES TUR NOVER AND DETERMINED DIFFERENCE OF RS.45,97,12,103. THE AO HA S GIVEN REASONS FOR ESTIMATION OF GROSS PROFIT AS PER WHICH , THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT RELIABLE AS THE ASSESSEE FAILED TO EXPLAIN FALL IN GROSS PROFIT WIT H PLAUSIBLE REASONS. THE AO HAS TAKEN 9% GROSS PROFIT WHICH IS BASED ON GROSS PROFIT DECLARED FOR AY 2010-11 AND THEN COMPARED SUCH GROS S PROFIT RATE 11 ITA 5010/MUM/2016 TO THE GROSS PROFIT DECLARED FOR THE YEAR UNDER CON SIDERATION WHICH IS AT 3.55%. ACCORDING TO THE AO, THE ASSESSEE HAS DEC LARED OVER AND ABOVE 10% G.P. OVER THE YEARS, BUT THERE IS A SUDDE N DECLINE IN GROSS PROFIT RATIO TO 3.55% FOR THE YEAR UNDER CONS IDERATION FOR WHICH THE ASSESSEE HAS NOT OFFERED ANY PROPER REASONS. IT IS THE CONTENTION OF THE ASSESSEE THAT THE GROSS PROFIT RA TIO CANNOT BE INTACT FROM YEAR TO YEAR WHICH IS DEPENDENT UPON VARIOUS F ACTORS INCLUDING COST OF RAW MATERIALS, OVERHEAD EXPENSES AND THE MA NUFACTURING PROCESS. THE ASSESSEE FURTHER CONTENDED THAT THE FI RST REASON FOR FALL IN GROSS PROFIT RATE FOR THE 4 YEAR UNDER CONSIDERATION IS DUE TO SHARP INCREASE IN COST OF RAW MATERIALS BASED ON INTERNAT IONAL RATES. ANOTHER REASON FOR FALL IN PROFIT RATE IS ON ACCOUN T OF REGROUPING OF CERTAIN EXPENSES INCLUDING FREIGHT, TRANSPORTATION, COOLIE AND CARTAGES WHICH HAVE BEEN GROUPED UNDER THE HEAD, 'S ELLING & DISTRIBUTION EXPENSES' FOR THE PREVIOUS FINANCIAL Y EAR, WHEREAS DURING THE YEAR UNDER CONSIDERATION, THE SAID EXPEN DITURE HAVE BEEN GROUPED UNDER THE HEAD 'MANUFACTURING COST 1 . IF THE ABOVE EXPENSE OF RS. 17,90,84,942 IS EXCLUDED FROM THE MANUFACTUR ING EXPENSES, THEN THE CORRECT GROSS PROFIT RATE FOR THE YEAR UND ER CONSIDERATION WORKS OUT TO 5.68% AND THE CORRECT GROSS PROFIT RA TE OF 5.68% IS COMPARED TO GROSS PROFIT DECLARED FOR AY 2011-12, I .E. 6.8%, THEN, - 12 ITA 5010/MUM/2016 THERE IS A MINOR DIFFERENCE OF 1.12% WHICH IS PUREL Y ON ACCOUNT OF INCREASE IN COST OF RAW MATERIALS WHICH IS BEYOND T HE CONTROL OF THE ASSESSEE. THOUGH, THE ASSESSEE HAS EXPLAINED ALL TH ESE FACTORS WITH NECESSARY EVIDENCE, THE AO HAS IGNORED COMPLET E DETAILS FILED BY THE ASSESSEE AND MADE ADDITION BY TAKING GROSS P ROFIT RATE OF 9% WITHOUT MAKING ANY ADVERSE COMMENTS ON BOOKS OF ACC OUNT MAINTAINED BY THE ASSESSEE. ON THE OTHER HAND, THE ASSESSEE HAD FILED COMPLETE DETAILS TO JUSTIFY GROSS PROFIT DECL ARED IN ITS BOOKS OF ACCOUNT AND ALSO RECONCILED GROSS PROFIT RATIOS BET WEEN AYS 2011- 12 AND 2012-13. THEREFORE, THE AO WAS INCORRECT IN REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF Y GROSS PROFIT. 11. HAVING CONSIDERED BOTH THE SIDES, WE FIND THAT A SI MILAR ISSUE AROSE FOR CONSIDERATION BEFORE ITAT, MUMBAI BENCH ' E' FOR AY 2011-12 IN ASSESSEE'S OWN CASE IN ITA NO.3151/MUM/2 015. THE CO-ORDINATE BENCH OF ITAT UNDER SIMILAR SET OF FACT S, HAS DELETED ADDITION MADE BY THE AO TOWARDS ESTIMATION OF GROSS PROFIT. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED BELOW:- '9. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE HAVE NOTICED THAT THE AO HAS REJECTED THE BOOKS OF ACCOU NTS MAINLY FOR THE REASON THAT THERE WAS FALL IN THE G. P RATE. HOWEVER THE CONTENTIONS PUT FORTH BY THE ASSESSEE A S WELL AS M/S KAMANI OIL INDSUSTRIES PRIVATE LIMITED THE D ETAILS FURNISHED BEFORE THE TAX AUTHORITIES WOULD SHOW THA T THE ASSESSEE HAS GIVEN PROPER REASON FOR THE FALL IN TH E G.P RATE, I.E., THERE WAS INCREASE IN THE RAW MATERIAL COST AND 13 ITA 5010/MUM/2016 THE ASSESSEE COULD NOT MAKE CORRESPONDING INCREASE IN THE SELLING PRICE DUE TO ACUTE COMPETITION. THE ABO VE SAID SUBMISSION OF THE ASSESSEE IS CORROBORATED BY THE F ACT THAT THE SALES TURNOVER OF THE ASSESSEE HAS INCREASED BY ABOUT 40% DURING THE YEAR UNDER CONSIDERATION. WE NOTICE THAI THE ASSESSEE HAS GIVEN DETAILED NOTES TO THE AO EXP LAINING THE REASONS FOR THE FALL IN THE G.P RATE. WE NOTICE THAT THE ASSESSEE HAS ALSO SUBSTANTIATED THE EXPLANATIONS BY FURNISHING THE COPIES OF PURCHASE INVOICES TO PROVE THAT THE RAW MATERIAL COST HAS INCREASED DURING THE YEAR UND ER CONSIDERATION VIS-A-VIS IN THE IMMEDIATELY PRECEDIN G YEAR. 10. WE FURTHER NOTICE THAT THE ASSESSEE HAS GIVEN A N ADDITIONAL 'NOTE ON GROSS PROFIT' BEFORE THE AO AND THE SAME IS PLACED AT PAGES 127-128 OF THE PAPER BOOK. A PERUSAL OF THE SAME WOULD SHOW THAT THE AVERAGE COS T OF RAW MATERIAL HAS INCREASED FROM RS.40,932/- PER MT TO RS.56,535/- PER MT RESULTING IN AN AVERAGE NET INCR EASE OF RS. 15,6037- PER MT. HOWEVER, THE AVERAGE SELLING P RICE HAS INCREASED FROM RS.52,9607- PER MT TO RS.67,1537 - PER MT RESULTING IN A NET INCREASE OF RS. 14,1927- PER MT. THUS THERE IS MISMATCH OF RS. 1,4117-(RS. 156037- L ESS RS. 14,1927-) BETWEEN THE NET INCREASE IN PURCHASE RATE AND SELLING RATE. THIS DIFFERENCE OF RS.1,4117- ON THE PURCHASE OF 1,04,952 MT OF RAW MATERIAL HAS DENTED THE GROSS PROFIT BY RS.14.80 CRORES. THE ASSESSEE HAS F URTHER SUBMITTED THAT OTHER DIRECT COSTS AND DEPRECIATION HAVE ALSO INCREASED DURING THE YEAR TO THE TUNE OF RS. 1 .96 CRORES. THUS, WE NOTICE THAT THE ASSESSEE HAS RECON CILED THE FALL IN GROSS PROFIT RATE WITH FACTS AND FIGURE S. HOWEVER, WE NOTICE THAT THE AO HAS SIMPLY REJECTED THE SAME WITHOUT FINDING FAULT WITH THE EXPLANATIONS SO GIVEN BY THE ASSESSEE. 1 1 . IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN HOLDING TH AT THE AO HAS NOT MADE OUT A PROPER CASE FOR REJECTING THE BO OKS OF ACCOUNTS. ON THE CONTRARY, WE NOTICE THAT THE ASSES SEE M /S.KAMANIOILLNDUSTRIESPRIVATELIMITED HAS CONVINCING LY EXPLAINED THE REASONS FOR THE FALL IN G.P RATE. ACC ORDINGLY WE UPHOLD THE ORDER OF LD CIT(A) IN SETTING ASIDE T HE ORDER OF REJECTION OF BOOKS OF ACCOUNT. 14 ITA 5010/MUM/2016 12. SINCE THE ASSESSEE HAS EXPLAINED THE REASONS FO R THE FALL IN G.P RATE AND SINCE THE NORMAL LOSS DECLARED BY THE ASSESSEE IS MUCH LOWER THAN EARLIER YEARS, WE ARE O F THE VIEW THAT THE NON-MAINTENANCE OF INTER PROCESS RECO RD HAS NOT IMPACTED THE PROFIT OF THE YEAR. WE NOTICE THAT THE ASSESSEE HAS BEEN MAINTAINING SAME SET OF BOOKS OF ACCOUNTS AND STOCK REGISTER YEAR AFTER YEAR AND THE Y HAVE BEEN ACCEPTED BY THE AO IN THE PAST. EVEN OTHERWISE , THE ASSESSEE HAS RECONCILED THE QUANTITY DETAILS OF RAW MATERIALS AND FINISHED GOODS CATEGORY WISE. UNDER T HESE SET OF FACTS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN MAKING ADHOC ADDITION OF RS. 1.00 CROR E. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) IN CONFIRMING THE ADDITION OF RS. 1.00 CRORE.' 12. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH IN ASSESSEE'S OWN CASE FOR AY 201 1-12, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN REJECTION OF BOOKS OF ACCOUNT U/S 145(3) WITHOUT RECORDING ANY REASONS AS TO HOW BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE INCONSISTENT WITH RE GULAR METHOD OF ACCOUNTING FATTENED- AND ACCOUNTING STANDARDS. IN A BSENCE OF ANY FINDING AS TO INCORRECTNESS IN BOOKS OF ACCOUNT OR STOCK DETAILS, MERELY FOR THE REASON THAT THERE IS FALL IN GROSS PROFIT R ATIO, THE BOOKS OF ACCOUNT CANNOT BE REJECTED U/S 145(3), MORE PARTICULARLY, W HEN THE ASSESSEE HAS RECONCILED DIFFERENCE IN GROSS PROFIT RATIO WITH NE CESSARY EVIDENCES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A O WAS ERRED IN ESTIMATING GROSS PROFIT ON TOTAL SALES TO MAKE ADDI TIONS. WE FURTHER NOTICE THAT ALTHOUGH THE CIT(A) HAS ACCEPTED THE CO NTENTIONS PUTFORTH BY THE ASSESSEE TO DELETE ADDITION MADE BY THE AO TOWA RDS ESTIMATION OF 15 ITA 5010/MUM/2016 GROSS PROFIT, YET, HE HAS SUSTAINED ADHOC DISALLOWA NCE OF RS.1 CRORE BY FOLLOWING HIS PREDECESSORS ORDER. BUT FACT REMAIN S THAT THE ADDITION SUSTAINED BY LD.CIT(A) WAS DELETED BY ITAT, ON FURT HER APPEAL BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF L D.CIT(A) IN CONFIRMING THE ADHOC ADDITION OF RS.1 CRORE AND DIRECT THE AO TO DELETE ADDITION MADE TOWARDS ESTIMATION OF GROSS PROFIT IN TOTAL. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO.5010/MUM/2016 IS DISMISSED AND APPEAL FILED BY T HE ASSESSEE IN ITA NO.4964/MUM/2016 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 10 TH OCTOBER, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI